United States: The Supreme Court’s Decision in Arthur Andersen LLP v. United States: An Important Development Regarding the Legal Consequences of Document Retention Policies

On May 31, 2005, the Supreme Court unanimously reversed the conviction of Arthur Andersen LLP for obstructing an official proceeding by ordering the destruction of documents. The Court held that 18 U.S.C. § 1512(b)(2), a witness-tampering statute, is not violated if the defendant is not conscious of his wrongdoing, does not have in mind a "particular official proceeding" that his conduct will obstruct, or intends to do no more than "impede" that proceeding. This decision is important to any business with a document retention policy, and to any business that must comply with the document retention requirements imposed by federal law following enactment of the Sarbanes-Oxley Act.

As the Supreme Court recognized in the Andersen opinion, "‘[d]ocument retention policies’ . . . are common in business." Those policies "are created in part to keep certain information from getting into the hands of others, including the Government." And routine compliance with those policies occasionally will lead to the destruction of documents that otherwise would be used in an official proceeding. It cannot be the case, however, that a crime occurs whenever a defendant adheres to a document retention policy, in part to keep documents from others, with the result that an official proceeding is hampered. The Court stated that "[i]t is, of course, not wrongful for a manager to instruct his employees to comply with a valid document retention policy under ordinary circumstances."

The Government did not claim that Andersen’s document retention policy was not "valid." That policy called for a single central engagement file, which "should contain only that information which is relevant to supporting our work." The policy contained several pertinent directions to Andersen managers and employees: (1) "in cases of threatened litigation, . . . no related information will be destroyed"; (2) if Andersen is "advised of litigation or subpoenas regarding a particular engagement, the related information should not be destroyed"; and (3) notification procedures should be followed whenever "professional practice litigation against [Andersen] or any of its personnel has been commenced, has been threatened or is judged likely to occur, or when governmental or professional investigations that may involve [Andersen] or any of its personnel have been commenced or are judged likely."

However, the Government thought Andersen’s enforcement of its policy in 2001 was anything but "ordinary." The Government claimed that actual compliance with the policy previously had been spotty and generally lax. But, as the now well-known financial difficulties of Andersen’s client, Enron, became public, Andersen managers urged employees to destroy documents pursuant to the policy. Based on these allegedly unusual instructions to destroy documents, the Government obtained a one-count indictment charging Andersen with violating 18 U.S.C. § 1512(b)(2), which provides, in relevant part: "Whoever knowingly . . . corruptly persuades another person with intent to . . . cause or induce any person to . . . withhold a . . . document from an official proceeding [or] alter, destroy, mutilate, or conceal an object with intent to impair the object’s integrity or availability for use in an official proceeding . . . shall be fined under this title or imprisoned not more than ten years, or both."

Specifically, the indictment alleged that Andersen "did knowingly, intentionally and corruptly persuade . . . other persons, to wit: [Andersen’s] employees, with intent to cause" them to withhold documents from, and alter documents for use in official proceedings, including criminal proceedings.

A central issue at trial was whether Andersen had acted "corruptly," as that term is used in the statute. The trial court instructed the jury that "[t]he word ‘corruptly’ means having an improper purpose. An improper purpose, for this case, is an intent to subvert, undermine, or impede the fact-finding ability of an official proceeding." This instruction departed from a pattern jury instruction in significant ways. The pattern instruction defined "corruptly" as "knowingly and dishonestly, with the specific intent to subvert or undermine the integrity" of a proceeding. At the Government’s request and over Andersen’s objection, the district court altered the pattern in a way that allowed Andersen to be convicted even if it did not act "dishonestly," and even if it intended to "impede" but did not intend to "subvert" or "undermine" an official proceeding. The jury also was instructed that, "even if [Andersen] honestly and sincerely believed that its conduct was lawful, you may find [Andersen] guilty."

After a remarkable 10 days of deliberations, which included a deadlock and an "Allen charge," the jury returned a guilty verdict. In affirming the conviction, the Court of Appeals for the Fifth Circuit held that the Government was not required to prove that Andersen knew the document destruction was unlawful, so long as it proved that Andersen acted with an improper purpose. The Court of Appeals further held that the Government was not required to prove that Andersen had a particular proceeding in mind that it sought to obstruct. The Fifth Circuit also affirmed the trial court’s instructions that the "corruptly persuaded" element of the offense includes persuasion motivated by "an improper purpose" to "impede the fact-finding ability of an official proceeding."

In accepting the case for review, the Supreme Court focused on the question of whether the jury instructions misstated the requirements of the statute. The dispute over the jury instructions provided an opportunity for the Court to define the circumstances under which a company, by instructing its employees to destroy documents pursuant to its document retention policy, is guilty of corrupt persuasion under § 1512(b)(2).

This was the Supreme Court’s first commentary on corporate document retention policies. As noted previously, the Court recognized that such policies are ubiquitous and generally very valuable to business. The Court also observed that its traditional restraint in assessing the reach of a federal criminal statute was especially appropriate because the act underlying Andersen’s "conviction—‘persuasion’—is by itself innocuous," and because "‘persuading’ a person ‘with intent to . . . cause’ that person to ‘withhold’ testimony or documents from a Government proceeding or Government official is not inherently malign." The Court provided several examples where such persuasion is lawful: (1) "a mother who suggests to her son that he invoke his right against compelled self-incrimination," (2) "a wife who persuades her husband not to disclose marital confidences," and (3) an attorney who persuades a client to withhold documents covered by the attorney-client privilege. The Court emphasized that Congress, by using the adverbs "knowingly" and "corruptly," had excluded fact patterns such as these from criminal liability under § 1512(b)(2).

With these considerations in mind, the Court examined the instructions actually given to the jury. In overturning Andersen’s conviction, the Court held that the jury instructions were flawed because they failed to convey properly the elements of a "knowing corrupt persuasion" conviction under § 1512(b)(2).

First, the Court rejected the part of the instructions that told the jury Andersen could be convicted "even if [it] honestly and sincerely believed that its conduct was lawful." The Court reasoned that under the most sensible reading of the law, the term "knowingly" limits the phrase "corruptly persuades." The Court further observed that "‘[k]nowledge’ and ‘knowingly’ are normally associated with awareness, understanding, or consciousness" and that "‘[c]orrupt’ and ‘corruptly’ are normally associated with wrongful, immoral, depraved, or evil." The Court thus held that the statute required the Government to prove that Andersen was conscious of its wrongdoing. The instruction that the jury ignore Andersen’s honest and sincere belief "simply failed to convey the requisite consciousness of wrongdoing."

Second, the Court held that the instructions were flawed because they defined "corruptly" to mean "having . . . an intent to subvert, undermine, or impede the fact-finding ability of an official proceeding." In particular, the Court rejected those aspects of the instructions that—unlike the pattern instruction—excluded a need to show "dishonesty" and, in addition, permitted a conviction if Andersen intended in any way to "impede" the Government’s fact-finding ability. The Court noted that the dictionary defines "impede" as "to interfere with or get in the way of the progress of" or "hold up" or "detract from." Because anyone who persuades another to withhold relevant information from the Government "gets in the way of the progress of" the Government, the jury instruction failed to distinguish between innocent and corrupt persuasion. The instruction, in other words, "diluted the meaning of ‘corruptly’ so that it covered innocent conduct."

Third, the Court held that the trial court erred in leading the jury to believe that a conviction did not require a finding of any connection between the "persuasion" to destroy documents and any particular proceeding. At trial, Anderson objected to the instructions’ lack of a nexus requirement, arguing that "it is insufficient for the government to show the defendant intended to affect some hypothetical future federal proceeding." The Supreme Court acknowledged that a section of the statute states that an official proceeding "need not be pending or about to be instituted at the time of the offense." But the Court observed that it is "one thing to say that a proceeding ‘need not be pending or about to be instituted at the time of the offense,’ and quite another to say a proceeding need not even be foreseen." The Court held that a "knowingly . . . corrup[t] persuade[r]" cannot be someone who persuades another to shred documents under a document retention policy when he does not have in mind any particular official proceeding in which those documents might be material. By way of illustration, the Court invoked a prior decision in which it had distinguished between, on one hand, a defendant who knew only that his actions "might or might not" affect an official proceeding and, on the other hand, a defendant who knew that "his actions [were] likely to affect" a proceeding.

In sum, the Court held that a defendant’s persuasion of others to shred documents pursuant to a document retention policy is not "knowingly corrupt" if the defendant (1) was not conscious of its wrongdoing; (2) did not act dishonestly, or intend to do more than just "impede" governmental fact-finding, which is potentially innocent conduct; or (3) did not have in mind a particular proceeding that the shredding would affect

In identifying rules for future cases, it is important to focus on the specific jury instructions rejected by the Court in Andersen, rather than on Andersen’s conduct in that case. For example, the Court clearly held that a defendant cannot be held guilty under § 1512(b)(2) if it "honestly and sincerely believed that its conduct was lawful." Because the Andersen jury received the opposite instruction, it is impossible to know whether the jury would have found that Andersen held such an honest, sincere belief, notwithstanding evidence of a direct relationship between the intensity of the Enron scandal and the intensity of shredding activity at Andersen. In addition, the Court declined to decide what, if anything, the consciousness-of-wrongdoing element required beyond the absence of an honest and sincere belief in the legality of one’s actions. "The outer limits of this element," the Court said, "need not be explored." Similarly, neither the Supreme Court’s reasoning nor the facts of Andersen provide much guidance as to when an instruction to shred documents is "dishonest," or when such an instruction "subverts or undermines the integrity" of a proceeding—as opposed to merely "impeding" it.

Perhaps Andersen’s most important holding is its foreclosure of liability under § 1512(b)(2) absent a "nexus" between the instruction to shred documents and an intent to affect any particular proceeding. If a document retention policy is comprehensive, and enforced fully and routinely, no such nexus should exist. Under those circumstances, there would be little or no room for managers to ratchet up—or to embrace for the first time—compliance efforts when particular proceedings are on the horizon. In this connection, it warrants repeating that the reversal of Andersen’s conviction was based on faulty jury instructions, not insufficiency of evidence. Had the jury been instructed properly that a nexus was required, it might have convicted based on the allegedly unusual nature of Andersen’s compliance with its policy as the Enron crisis unfolded. Ideally, all of a business’s document destruction will result from management’s "instruct[ion of its] employees to comply with a valid document retention policy under ordinary circumstances" (emphasis added), since such instruction is "of course, not wrongful."

The entire Andersen decision was grounded in the Supreme Court’s construction of a single federal statute. The Court’s analysis thus does not apply—at least not directly—to other statutes and regulations, federal and state, with which businesses must comply. Perhaps most significantly, it does not directly address spoliation-of-evidence accusations, which arise frequently in discovery disputes in litigation. Even with respect to § 1512(b)(2) itself, the Court noted that "[w]e refer to the 2000 version of the statute, which has since been amended by Congress." Of particular importance is 18 U.S.C. § 1519, enacted as part of the Sarbanes-Oxley Act of 2002, which prohibits the knowing destruction of documents "in relation to or contemplation of" "any matter within the jurisdiction of any department or agency of the United States." In opposing certiorari in Andersen, the Government contended that "[m]ost federal prosecutors will henceforth use Section 1519—which does not require proof that the defendant engaged in ‘corrupt persua[sion]’—to prosecute document destruction cases." In ensuring regular and full enforcement of their document retention policies, therefore, businesses should take care that the policies are tailored to the stringent requirements of Sarbanes-Oxley. Regardless of the specific statute at issue, however, the Supreme Court’s general approach to document retention policies in Andersen confirms that the development and regular enforcement of such policies should be a matter of high priority for most businesses.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.